Will Teamsters Union Play Ball With YRC’s Struggling Turnaround?

Shares of YRC Worldwide Inc. fell sharply Wednesday after the transportation company reported disappointing quarterly earnings that it said stems from restructuring a subsidiary.

YRC began a major restructuring of its freight division earlier this year that involved changes such as consolidating end-of-line terminals and reducing distribution center locations.

But not enough truckers relocated to the terminals that gained freight volume, resulting in a driver shortage, YRC said. That helped cause delays in shipments and other problems, leading to “some temporary loss of business that, obviously, we’re not happy about,” YRC Worldwide Chief Executive James Welch said on a conference call Tuesday with analysts and investors.

In addition, YRC is saddled with almost $1.4 billion in debt, much of which is coming due in the next two years–and the company’s creditors won’t allow it to refinance until it renegotiates contracts with its labor union.

“In the past, some companies in our position have simply declared bankruptcy,” Mr. Welch wrote in an open letter to employees last month. “We have all worked too hard and sacrificed too much to go that route and lose some of the industry’s best jobs.”

Shares dropped $2.01, or 21%, at $7.72 in 4 p.m. trading Wednesday on the Nasdaq, a nearly 80% drop compared with a peak of $35.79 in July in the weeks after the company reported rosier first-quarter results.

While revenues were up slightly year-over-year at $1.25 billion in the third quarter, operating profit fell 79% to $5.8 million, primarily due to problems at YRC Freight. There, the company lost $9.7 million, compared with a profit of $2.8 million in the same quarter last year.

Mr. Welch, chief executive of the company since 2011, also took over as president of YRC Freight on Sept. 20, where he says he implemented a 90-day plan to turn the freight division around. He said there have been signs of some improvement in October. “Volume levels have improved in comparison to 2012, and this is the first time since March of 2012 that we’ve seen this,” he added during the call.

YRC Worldwide postponed releasing its quarterly earnings by a few days to meet with representatives of the International Brotherhood of Teamsters, which represents about 26,000 union employees at the company. The company’s creditors have said it must renegotiate the contracts for longer to mitigate the risk of instability in the next few years before the company can refinance its debt.

The company faces a debt principal repayment due in February of about $69 million, with an additional $1 billion due in late 2014 and early 2015. The company said current interest rate payments are also eating any remaining capital.

After the events following the Lehman Bros. collapse in 2008, YRC Worldwide renegotiated its union contracts, with workers taking a 10% pay cut. In subsequent negotiations, workers took further pay cuts and concessions. The current contract is in place through May 2015 for the 26,000 workers.

A spokeswoman for the Teamsters declined to comment.

Thomas Albrecht of BB&T Capital wrote in a note Wednesday that he thinks the odds of the Teamsters approving the contract are at least 70-30 because of the number of jobs at stake. “While we don’t know for sure, we believe an extension will be similar to the current contract, which has provided small annual wage increases in each April since 2010 and has avoided a large wage snapback,” he added.

Mr. Welch said extending the contract at competitive terms is a must for the company’s survival during the call on Tuesday.

“The path is clear. In order for us to more holistically refinance the capital structure, we need a more competitive contract,” Mr. Welch added.

Comments (5 of 38)

Why would the union agree to take more concessions? YRCW closing its door would be the best thing that ever happened to them. Yes they would lose their jobs in the short term but they will soon be working again in a much better position. Shipping volume remains the same, customers’ still need product shipped so dissolving YRCW will create a void in the market causing the existing companies to fill this void by absorbing YRCW’s business.

7:25 pm January 1, 2014

Clay wrote:

I believe this is a tactic to de-unionize the hard working people at YRC. While the union workers at YRC have sacraficed thousands of dollars annually the corporate monguels have raked in staggering salarys and bonuses. We are told they can do that because they have signed contracts, well guess what, so has the Teamsters. If they would take major cuts to their salary and benifits and prove they did, this would be alot easier to swallow. We have taken 2 pay cuts, a pension suspension and a pension deferral so the company could compete with our competitors. Since 2009, when this all started the company hasnt grown in customer base. I personally have been laidoff more working at 85% of scale than I did at full scale. The corporate monguels are cashing in on our sacrafices and I believe its time to say its enough. Mr Welch can put on his resume that he was involved in closing the , at once largest trucking company in the US. Something to be very proud of. I hope he can live with himself, Im sure he will and do just fine. There are many many things this company could do rather than come back to the hard working people for a fourth time. 2 years ago we gave the company what they said they needed to survive. This looks like we have people running this company that cant plan very far in the future.

9:07 pm December 25, 2013

Professional YRC guy wrote:

Let's see: In January 2009, we gave the company 10% because it was in dire straits.We received some stock options in return. In March, they defaulted on our retirement payments. There was nothing negotiated; they simply stopped paying. We didn't even find out about it until May. Then they came back wanting more: another 5% and suspension of the pension until January 1st, 2011. In the meantime, the front office had so jacked things up that we had lost nearly half our business since January. Tens of thousands of employees were laid off. We received LOTS more stock options in return. It was put to a vote that barely passed.
In the meantime, they did two reverse splits and flooded the market with new shares, essentially screwing the shareholders and the employees alike.
Oh, but they weren't done stealing and weren't done making a mess. In September 2010, they came back and wanted a deferral of the pension resumption until June 2011, and then at only 25% contribution, PLUS loss of a week's vacation for the most senior people, loss of 1/3 of paid break time, and the right to use part-timers.
This was put to a vote, with the usual threat of "we're going to have to shut the doors!" It barely passed the vote.
Now they're back seeking more from a work force that hates them, hates what they've screwed up, and doesn't trust the front office any farther than we can throw them! This time, they want a week's vacation from another group (8-10 years of service), a "bonus" instead of a step increase, and a pay freeze for the dock workers, the office staff and the facilities maintenance people. On top of that, they want a two-tier for new hires in those classifications.
Who's kidding who? We can't attract dock workers now. That is not an easy job. It is bitterly cold in the winter, stifling hot in the summer, noisy, dirty and stressful.
The unionized work force has forfeited over $3 billion in pay and benefits in five years. The smattering of non-union workers and front line management have forefeited a billion more. That is enough money to pay the interest, pay off the debt, buy the company outright AND replace nearly the entire over-the-road fleet. So where is all the money? Cayman, Lichtenstein, Switzerland? It's somewhere illicit. Remeber those stock options? Absolutely worthless today!
This desperately calls for a SEC investigation. Somebody has got to be stealing LOTS of money; there just isn't any other plausible explanation. Jeff Skilling, Joe Nacchio, Bernie Ebbers, have we got some company for you!

5:41 pm December 20, 2013

Anonymous2 wrote:

YRC is not in business to serve their customers. If the customers could only witness our OSD area, they would quickly realize a non-quality carrier. They are only in business to wage war with the employees.
We have already sacrificed plenty to keep this company afloat. Good luck with more concessions passing!

11:29 pm December 10, 2013

Anonymous wrote:

welch is off his fucking rocker if he thinks this will pass maybe he would have had a chance of passing it if all they wanted was an extension with no more consessions.but to ask us for another bail out when they just keep lieing to us close the door say good night gracy the show is over